What drove US equity returns in the last decade?


The MSCI US equity index delivered a total return of more than 250 percent in the 2010s. A cocktail of record low rates, stock buybacks, and balance sheet expansion has supposedly intoxicated the market and some have predicted that a mega hangover is due. But current data does not appear to support this theory.

Instead, it seems corporate earnings are largely responsible for driving US equity returns, despite buybacks not being the primary driver of earnings per share (EPS) growth.

Looking at specific sectors, Technology has been a key driver. Although some see another ‘tech bubble’ looming as IT and Consumer Discretionary have returned nearly 400 percent over the last decade. But it is those sectors along with Communication Services that have delivered, by far, the better earnings growth over the last ten years.

So what does this mean for the outlook? Well, while we start the new decade with US equity multiples only a little higher than where we started the 2010s – meaning slower earnings growth could temper further equity gains – our view is that should the US, and specifically the US Technology sector, maintain their earnings dominance, the US equity party will continue well into 2020.